When and How to hedge Forex position.
Synonyms: buffer, cushion, shield, safeguard.
Definition: protecting yourself against financial loss.
How exactly does hedging work:
Welcome back to my blog, thank you for being here again, just a short article I thought I should post regarding hedging Forex position, now that we know the definition of the word I am sure we all want to know how we can use hedging as a protective measure, please note this is not a way to replace stop loss, but it can really help to prolong the”life” of your trade should it go against you, stop loss should be a trader’s best friend, trading without stop loss is like walking naked in eloff street Johannesburg totally exposed. Sometimes trades won’t go our way (it happens to all of us) and sometimes we really want to avoid putting stop losses too tight, so hedging becomes one more option that we can use to protect ourselves from being stopped out too early or losing too much on one position, it also reduces anxiety should you have bad trades. Before reading further, please note that this should not be taken as a financial advice or trading strategy of some sort, should you decide to use it, do it with precautions.
How to hedge:
Hedging Forex position should not replace stop loss, but in case you find yourself on the wrong side (like we do sometimes) you can try it. I do this from time to time, and please note that I am not giving you a trading strategy here, it should not be used as a trading strategy, I am however just sharing my journey with you as I always do and if somehow you find yourself in the similar situation whereby you enter a trade and it goes against you, then you can try hedging, it does protect your account from being blown out of the market, precaution needs to be exercised when hedging Forex position as it may require big enough account, especially if you are trading CFD’s which then charges commission on most platforms. This is how I usually do it, lets say you have a Long Eurusd on H4 chart and as we know that the market is forever moving, swinging up and down and swinging up again before you can reach your target, along the way while you have your Long Eurusd a Shorting signal opportunity might arise on a shorter time frame, what do you do then? do you ignore the opportunity? do you close the long position you have (which is at a loss because the market is against you), i always seize the opportunity and go short on the same currency pair but do a bigger lot size than the initial position, if the initial position was 0.50 I would then go and do 1.00, but as mentioned above that you have to have a reasonable equity to be able to hedge, and having same currency pair opposite each other create an opportunity to kind of “cancel” the loss, or give your initial position a chance to come positive without being stopped out too early. If the position you hedged with come positive, you can then close the initial position and take a loss,you might still take a loss even when you hedged, but the losses would be more minimized than if you didn’t hedge or you can end up with small profits, but that is better than being stopped out or taking huge losses. That is how I do it, it is my own experience, but stop-loss remain my number one shield and it helps to stay disciplined.
Please also take note that not all the Forex bloggers are Forex traders, some information that we read out there does not really apply when trading real money, so learn to do more research whenever you come across a Forex blog post. On the other hand, though, all that you read on this blog is my own personal experience, I talk about what I have experienced in my trading journey. Thank you again for stopping by and reading my blog, if you wish to receive my weekly posts you can subscribe (locate the “SUBSCRIBE TO MY BLOG“) on the sidebar, simply put your email address there,wait for confirmation email, click on the link sent to your email to confirm your subscription and every time a new post is published you will have it delivered to your email, do contact me for further assistance or private lessons, kindly share this post using the share buttons below if you find this information valuable, stay tuned for more…